Bitcoin = bubble

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The fundamentals of any currency require two things:  a means of exchange (ie; acceptance by its users) and a store of value.

Gold has traditionally been a currency because it is extremely rare.  That means it can’t be easily “printed” (mined) and thereby debased, which makes it a good store of value.  Its status as an element also provides longevity, furthering its qualities as a store of value.  Finally, it’s history gives it a solid basis as a universal means of exchange.

And then we have Bitcoins…

Sure, sure – the major currency zones are in the midst of a massive debasement of their monies.  The US has printed over $4 trillion in the past few years, Japan has been printing for over a decade and Europe is now heavily into the printing game.  This will lead to inflation – it cannot be otherwise.  If, say, the output of goods and services remains the same but the monetary base doubles, it is only logical that nominal prices will double.

So the printing game is really a stealth tax, whereby governments steal money from savers by devaluing their savings via printing money to cover their debts and spending.

In such a situation people run for certainty, or anything that looks like certainty in such an uncertain world.  That’s why gold has gone through the roof.  So have the Aussie and Canadian dollars, because people around the world recognise that Canada and Australia have stable currencies that let you buy stuff in advanced economies filled with cool consumer goods and – more importantly – the currency won’t be printed away by insane monetary policies (yet).

Bizarre as it seems, the fact that Bitcoins cannot be printed means their value has also shot up as people run for monetary cover.  There is a (kind of) fixed number of Bicoins, so people have decided to swap their portion of a practically infinite number of dollars, yen and euros for a small portion of a fixed number of Bitcoins.  This demand has seen Bitcoins rocket in value.  As this increase in value becomes noticed, speculators want in and a spiral takes hold.

BUT…

Bitcoins are just strings of ones-and-zeros.  They have no intrinsic value (like gold).  They don’t have universal acceptance (like gold).  They have no history as a currency (like gold).  Finally, they have no nation-state standing behind them (like the Australian and Canadian dollars).  They exist only in an international digital marketplace.  If people stop seeing them as a means to store value or that their value has become detached from reality (kind of like a 17th century Dutch tulip), they may decide that Bitcoins are a bit rubbish because, well, they’re just a token digital “currency”, with no history as a currency, no intrinsic value and no nation-state standing behind them.  Such a loss of confidence means they will no longer be accepted as a means of exchange.  At that point the crash will come – big time.

Verdict:  bubble.

 

The Economist confirms: no global warming for 15 years

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There’s an old religious joke that notes the number of gods humans worship has fallen from the thousands to the hundreds to just one.  The joke is that we keep getting closer to the real number…

Similarly, The Economist now admits in this article that there has been no global warming for at least 15 years and this is very, very curious.  Of course it explains all sorts of reason why climate change is still real and dangerous… although perhaps CO2 isn’t quite as powerful as first thought and maybe natural forces are greater.  Still, like that old religious joke, at least they are getting closer to the real answer…

Why is Germany pulling in its gold reserves?

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This is interesting:  Handelsblat reports that Germany is pulling in its gold reserves.
The 11% of German gold held with the Banque de France will go to zero, while the 45% of German gold held with the Federal Reserve in New York will be “reduced”.
Why would the Germans want the gold they hold on deposit with other central banks back?
Zerohedge has more, speculating the Bundesbank’s move could spark a run.
Trust between the world’s big central banks appears to be breaking down.  Given their insane monetary policies this shouldn’t be a surprise.  It is, though…

The world just keeps getting better, so bring on 2013.

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I don’t like being a pessimist.  It’s true that monetary policy in the US and Europe will almost certainly lead to another financial disaster, although my prediction that the Euro would collapse in 2012 was obviously wrong.  The Middle East looks particularly unstable and could be a flashpoint for conflict.  Pakistan continues to drift toward fundamentalism, North Korea is launching long-range rockets and China’s belligerence over the Diaoyu / Senkaku islands is putting its neighbours on edge.  Unfortunately there is much to be pessimistic about.

So on a more optimistic note:  Despite all these problems, the fundamentals for humanity are brighter than ever.  Billions of people continue to be lifted out of poverty by strong economic growth in emerging markets.  America has discovered vast reserves of oil and natural gas in its shale formations.  Gas is thought to be deposited across huge swathes of the planet.  A recent “Australian Gas Resource Assessment”  notes that coal seam gas reserves have doubled in the past two years while the search for shale gas has barely begun.  For those who do believe in dangerous man made warming, gas emits half the CO2 per unit of energy compared with coal.  In the US, gas has overtaken coal as a source of electricity production – the first time king coal has been dethroned as a primary energy source for electricity.

Added to all this, a recent study shows we have reached “peak farmland”.  Matt Ridley covers a recent academic paper from Rockerfeller Univerity showing that “Globally, the production of a given quantity of crop requires 65% less land than it did in 1961, thanks to fertilizers, tractors, pesticides, better varieties and other factors. Even corrected for different kinds of crops, the acreage required is falling at 2% a year.

All good news – but Ridley has another post that chimes with my thoughts on the world more generally.  While the world is indeed getting better, Europe seems to be in the grip of a perverse mysticism that is leading to disaster.  On climate change, the Euro, government’s role in the economy and much else, Europe is in a fundamentally bad way.

There are, however, signs of hope.  The UK looks to be heading for an exit from the EU, an event that could tear the EU apart.  This is a very good thing, in my opinion.  And if (when?) the Euro does collapse, other European nations may decide that the EU, with all it’s inordinate bureaucracy, is just not worth the cost.

I have argued before that Europe has remarkable resources that could allow it to prosper and grow.  The EU’s monolithic grip on the continent is the single biggest factor in the decline of its prosperity.  If 2013 brings calamity to the EU, it could well be the trigger for a generation of renewal and reform.

I undertand that wishing disaster on Europe is a rather pessimistic way of being optimistic, but it’s hard to see how the EU can end any way but badly – but end it must.  Europe’s remarkable rebound from the great wars of the 20th century shows that renewal after disaster is possible.  The nations of Europe must reassert their authority and dispense with their dreams of a superstate.  There are growing political opportunities within the bodies politic of these states for advocates of EU disengagement and reform.  The almost total buy-in to the EU from across Europe’s political spectrum looks to be coming to an end.  Europe’s peoples seem set to assert their authority over their political classes, although the process could be messy.  Europe’s peoples need to combine around new political groupings to reject the monolithic superstate that has been thrust upon them.  In Churchill’s words;  ”they are but to be combined to be obeyed”.  It won’t take many cracks in the EU edifice for the whole thing to come crashing down.

As the world continues to get a whole lot better in 2013, Europe may be an aberration from the trend.  Given enough time, though, it may well rebound.  Of course, none of this may happen in Europe until 2014… or 2015…  hey, even a stopped clock is right twice a day.

Happy 2013

 

Paul Krugman – proving Orwell’s point that “there are some ideas so absurd that only an intellectual could believe them”.

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Paul Krugman – Nobel laureate in economics – has a column in the New York Times explaining that printing money isn’t really a free lunch after all.  Despite his long advocacy for the printing presses and insane levels of government spending, he admits:

“It’s true that printing money isn’t at all inflationary under current conditions— that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.”

This ignores one inconvenient problem:  who in the world would buy that Federal debt?  The U.S. Federal Reserve now has over $2.5 trillion (trillion!) of debt in its coffers that it’s bought from the government, meaning that’s how much money it has printed.  If the Fed were to start selling why would you buy, say, a cool billion bucks of debt from it when you know it still has $2,499 billion to sell?

Krugman must know that this virtually limitless supply of debt has no corresponding demand in the market.  The face value of that debt will inflate away to a fraction of its current purchasing power as inflation picks up.  Buyers will demand a vastly higher interest rate than the 0% now on offer.  Given that most of the debt has a fixed coupon (interest rate), the price paid for the bonds would be well below par to reflect the interest buyers will demand – meaning the price of these treasuries will collapse.  Thus, as soon as the Fed tries to sell any of it back to the private sector, interest rates on US government debt will skyrocket.

What happens when outstanding debt matures in these circumstances and the US has to refinance it?  The US government simply can’t afford to pay sky-high interest rates on its outstanding $16 trillion in borrowings.  The only party willing to buy its debt at low interest rates is the Fed (by printing more money), so instead of winding back its balance sheet and pulling money out of the economy it will need to remain as the buyer of government debt no matter what.  It simply won’t be able to stop printing money.  This is the trap that we are in – and it will lead to hyperinflation.

How can you have a Nobel prize in economics and not see any of this?  It proves George Orwell’s insight – the money printing we are living through is so absurd that only an intellectual could believe in it.

Of course, it’s not just the Fed.  The Bank of Japan, The Bank of England and the European Central Bank are out of control as well.  This is all going to end very, very badly.

William Gross, MD of Pimco, has more on the subject here.

 

Global Warming: Moving the Goalposts

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The ABC and The Sydney Morning Herald have been running their usual climate-scare stories over the past week to coincide with the 18th (18th!) climate conference that just finished up in Doha.  One of the lines they’ve been peddling is that temperatures over the past 23 years have risen in line with the IPCC’s original projections that were released in 1990.  Can this be true?

As a keen watcher of the world’s temperature I pulled up the UAH satellite data to check.  A regression from today back to 1990 shows the world warmed by just 0.4C in that time.  So what did the IPCC predict?

The 1990 IPCC summary for policymakers stated that warming was projected to be 1.8C by 2030 (reduced by 30% for the low estimate or increased by 50% for the high estimate – see page XXIV in the summary for policymakers here).  This implies warming of 1C from 1990 – 2012, with the lower estimate indicating 0.73C warming and the high estimate 1.55C.

How then does a 0.4C temperature increase from 1990-2012 fit within the 1990 IPCC projections of 0.73C-1.55C?  Easy:  retrospectively widen the projections.

In a recent Nature Climate Change article that both the ABC and the SMH refer to, researchers added a new factor to the 1990 IPCC model called “natural variability”.  This greatly widens the range of temperature projections, with the lower bound now dropping from 0.73C to 0.28C – and hey presto, our 0.4C of warming is now within the modified estimates!

This is very handy because the paper also states there was  ”an unexpected stability in global mean temperatures over the second half of this period (1990-2010)”.  Note the word “unexpected” and the confirmation that there hasn’t been any global warming for at least the past decade.

In any case, the actual 0.4C of warming since 1990 is now comfortably within the new range because the paper states “adding noise from natural year-to-year variability through any method widens that prediction enough to comfortably include the observed trend”.

Yes indeed.  Of course the ABC and Fairfax didn’t mention that only by using much widened predictive bands did the 0.4C of warming over the past 23 years fall within the IPCC’s estimates, and only then at the low end.  It wouldn’t be consistent with the scare story to admit that little modification.

The ABC quoted professor Matthew England of UNSW saying that “anybody out there lying that the IPCC projects are overstatements or that the observations haven’t kept pace with the projections is completely off line with this … the analysis is very clear that the IPCC projections are coming true”

I find that to be, at the very least, rather unfair.  If the original IPCC projections are used then the rate of global warming is significantly below their estimates.  Only by moving the goalposts to incorporate the “unexpected” “natural variability” can we say the observed warming is consistent with their predictions.

So don’t believe the hype:  The IPCC’s predictions have been shown to be wrong and the world just ain’t warming like it’s supposed to.

 

Don’t bother planning for the distant future.

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The shale gas and oil revolution is a classic example of why we shouldn’t prioritise fixing things that may occur 100 years from now.  Actually, forget 100 years – make it 20.

For decades the pessimists have been predicting peak-oil, the exhaustion of our natural resources and, of course, environmental doom.  The classic in this genre was The Club of Rome’s 1972 “Limits to Growth”.  Using big, scary computer models (climate change, anyone?) they predicted that by 2012 we would have consumed most of our resources and society would collapse.  In an excellent takedown of the club’s wrongheaded predictions, Bjorn Lomborg points out that “Their conclusion was that before 2012, the world would run out of aluminum, copper, gold, lead, mercury, molybdenum, natural gas, oil, silver, tin, tungsten, and zinc — 12 of the 19 substances they looked at. They were simply and spectacularly wrong. ”

In the past 40 years humanity has grown immensly more wealthy and there is no sign of resource depletion.  As I have argued before, our planet is so big and so abundant that for all practical purposes our resources are effectively unlimited.  The shale story is the latest chapter and has been bubbling away in the background for a few years but its game-changing effects are starting to dawn on the media and policy makers.

Hydraulic fracturing (fracking) has only been around for a dozen years, but it has revolutionised energy supplies.  Gas prices have plummeted in the US, which is now in the midst of an energy-boom led recovery (despite the Feds insane attempts to ruin it by printing money).  Shale deposits exist across the planet in Europe, North America, Australia, China, Africa – pretty much everywhere.  As Nigel Lawson points out in the Daily Mail, the US is now expected to be a bigger oil producer than Saudi Arabia within 5 years and is already the largest producer of gas.  Lawson also points out that “according to the U.S. government, oil shale deposits in an area called the Green River Formation in the western United States are estimated to contain up to 3 trillion barrels of oil — three times more than the whole world has consumed in the past 100 years.”

So it looks like we can keep the lights on for a while longer then.  And just incase any of my readers are concerned about all the “carbon-pollution” this gas may produce, gas has far less CO2 per unit of energy than coal – which is why US CO2 emissions have been falling for the past few years as it dashes for this wonderful energy supply.

If you had told someone a dozen years ago – just as oil prices were rocketing up – that the world’s energy problems would shortly be solved, they’d have though you were mad.  And this brings me to the main point of this article:  the future is simply unknowable, so trying to make detailed plans for 10, 20, 100 years hence is absurd.  The world changes in ways we just can’t imagine.

Can you imagine Apple working on a computer that will be released 20 years from now?  Or Toyota working on a car to be released in 2040?  How about a property developer with a business plan for a new building to be completed in 2100?  I fully accept that many technologies are being worked on today that will have a huge impact on our cars, computers and buildings in the future, but it remains unimaginable how such technologies will be applied to these products.

Of course we can plan for the future by educating our children, setting aside parks in our cities and building infrastructure that can cope with expected population growth, but planning anything more detailed than such broad-brush approaches is destined to be laughed at by future generations.  Nonetheless, today’s climate lobby provide precise predictions about future temperatures and sea-levels along with many bone-headed prescriptions for our future energy mix.  I am willing to bet that pretty much everything they say about the future will be proved wrong.

To illustrate what I mean, take a look at the following three pictures.

First, here is Sydney in 1928:

Sydney in 1928

Next, here is a 1928 artists impression of a future Sydney when aviation has taken over the skies – and look at all those skyscrapers!

Sydney's future, from the perspective of 1928

Finally, here is Sydney in about 2008, just 80 years after the first photo.

Sydney circa 2008

See my point?  We can’t possibly know how the world will look in 100 years, so why bother planning for it?

NSW: The nanny state strikes again

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As of November 1 in New South Wales you may only use a mobile phone for calls or GPS if it is secured on a fixed mounting or the mobile phone does not require you to touch it.

Use of all other functions – and even holding the phone – is banned.  These rules apply if the car is moving or stationary (although not if parked).

This action cops a $289 fine and three demerit points in NSW

This makes no sense.  There is no law against looking at a paper map, holding a coffee or reading a printed email.  I understand that drivers should not read emails or gaze at maps while driving – but why not if you are stopped at a red light or in traffic?  If it’s ok to hold a coffee, why can’t I hold the phone and chat on speaker?  Arguably, using a GPS map on your phone is more efficient and takes less time to get your bearings than using a paper map.  So why is one banned and not the other – particularly if I’m stopped at a red light?

While this action is perfectly legal

The Transport for NSW website explains as follows:

A recent study reveals that using mobile phones when driving has great effect on road safety. The key findings are:

  • Driver reaction times were significantly slower
  • Drivers were less able to maintain a constant speed and safe distance and to keep in lane
  • Driver displayed an inability to recognise hazards on the road
  • Drivers displayed a significant visual distraction and missed more road warning signs.

However there is no link to this study.  What is the methodology?  Did they test the use of  map or email applications while stopped at a red light?  If so, what additional risks resulted from this?

When I called Transport for NSW they said they had no access to the study and directed me to The department of Transport, Roads and Maritime Services.  I await their response.

In the mean time, until I can analyse the study used to justify these new regulations, I can only conclude that this is just more bureaucratic, nanny-state meddling in our lives.  Drivers in NSW are not children.  We understand that driving requires our full attention but the inconsistencies here strike me as absurd.  I can pick up the newspaper at a red light, but I can’t check that newspaper’s website on my phone.  I can’t even hold my phone while driving or stopped, but I can hold a coffee or, say, a brick.

And so is this one... see the difference? No... me either.

The punishment, by the way, is $289 and three demerit points (from the full 13) – the most serious demerit punishment available.

How on earth do they come up with this stuff?

Climate Change and Bondi’s dystopian future

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Waverley Council takes climate change very seriously.  To help us understand its effects they have erected this informative plaque at Bondi Beach showing expected sea level rises by 2040 and 2100.  The bottom marking shows where sea levels were when the plaque was erected in 2007 (and, erm, where they remain today).

Waverley Council warns us about the future

It is true that sea levels actually fell last year and the rate of increase over the past 20 years has averaged just 3mm per annum.  Nonetheless, we don’t have to wait until 2040 to see the devastating effects that climate change will bring.  Today in Bondi, just seconds – seconds! – after the first photo was taken, mother nature unleashed her fury.

Seconds later, the future arrives at Bondi

This futuristic surge took place while hundreds of children were playing on the Beach.  Luckily, no one was injured and a quick survey confirmed no property was damaged, although my shoes did get a soaking.  As the sign shows, however, this is what climate change is predicted to bring.

Bondi's dystopian future, circa 2040

This may just look like high-tide with a bit of a swell, which…  um…  it is.  But in 2040, according to Waverley Council and the CSIRO, this sort of thing will destroy us.
How will we survive?
.